Fletcher's offer for Crane expected to fly

Jonathan Ling, chief executive officer of Fletcher Building. Photo / Sarah Ivey

Fletcher Building's increased offer for Crane Group is a fair bid but is unlikely to result in a lot of financial gains, analysts say.

The New Zealand construction giant won approval from Crane's board on Monday after lifting its bid by A$57 million ($74 million) to A$797 million.

The offer, open until February 25, is still conditional on receiving 90 per cent approval from shareholders as well as passing certain regulatory milestones. Craig Brown, senior investment analyst at institutional investor OnePath, said he believed the latest offer had a good chance of being accepted.

"Around 45 per cent of the Crane register is held by mum and dad investors and they tend to do what the board recommends."

Many of the large institutional Crane investors including Perpetual - an Australian fund manager which is the largest shareholder in both Crane and Fletcher - have already said they will accept the offer, if a higher bid does not eventuate.

Brown said the offer price was quite high but there were obviously some synergies to be gained through the takeover.

"At this stage it is a little bit hard for those of us outside of the company [Fletcher] to get a strong handle on it."

Brown said the increased offer price had been important for getting the deal done and it appeared the transaction was being undertaken at the bottom of the construction market.

"It's a good outcome. If they can make the transaction work well the price becomes less relevant."

But Brown said he didn't expect to see any financial benefits until Fletcher's 2012 results.

Deutsche Bank analyst Emily Behncke said in a research note she believed the revised offer was a "reasonable outcome" for Fletcher Building assuming A$15 million in savings by combining the two businesses.

"Each additional A$5 million in synergies extracted from Crane Group adds approximately 1.1 per cent to FY12 earnings per share. Further details of synergies are yet to be provided by Fletcher Building."

First NZ Capital analyst Kar Yue Yeo said that while the price was higher than what he would have liked "we maintain that it is neither overly expensive or highly value accreditive on a risk-adjusted basis given the uncertainty over the potential synergy benefits from this transaction and the patchy conditions in the Australian construction market."

Yeo said he expected it to cost around A$12 million to restructure the Crane business. Fletcher shares closed up 5c at $7.78 yesterday.

THE NEW OFFER
* One Fletcher Building share and A$3.50 cash for each Crane share.
* Crane will also pay A50c a share franked special dividend.
* The total implied value is A$10.07 per share.
* The offer values the deal at A$797 million.